Question

Question: A project manager has anticipated several scenarios that might adversely affect the cost of the project. In response, the project manager has allocated money to address these issues should they occur. What is the component of the budget called?

Answer choices: Padding the budget

Contingency reserves

Management reserves

Activity cost estimates

Answer 1

Answer: The given options are evaluated as follows :

• Padding the Budget - Making the budget larger than the actual estimates for a project either by increasing cost or reducing revenue from a project. Not related to any contingency and hence, this option is rejected.
• Contingency reserves - Reserve created to offset for anticipated future scenarios if they occur. It is used to provide for unfavorable changes in the project cost. Hence, this is the correct option.
• Management reserves- A receive created to account for unforeseen events. Generally based on the cost of the project. This option is also rejected as it involves accounting for unforeseen events and not anticipated losses.
• Activity Cost Estimates - A process to determine the costs that may be incurred to complete a specific activity in a project. Not related to any future scenarios, hence this option is also rejected.

Conclusion: “Contingency Reserves “ is the correct answer.